We wrote this last month sensing that the European street was repulsed by Donald Trump.

No doubt Europe’s misgivings about the new American president were reflected in the surprise defeat of the “Dutch Trump”, Geert Wilders, in Wednesday’s general elections in the Netherlands general elections. Wilders’s Party for Freedom finished a disappointing second, winning 20 seats versus the current government’s People’s Party for Freedom and Democracy, which won 33. Just a month ago Wilders was expected to win 35 seats. We shouldn’t underestimate the damage the Wilders campaign has done to the body politic in Northern Europe, however.

Nevertheless, we also posted this on February 8th, even believing Wilders would win 35 seats:

We were surprised that the setback to European populism given Wednesday’s defeat in the Netherlands did not result in a further tightening of the Oat-Bund spread, which widened a de minimis 3 bps this week.

UBS does warn about the complacency resulting from the Wednesday’s populist defeat.

“The unconvincing populist performance in the Netherlands may weigh on French voters’ sense of urgency when heading for the ballots for their elections,” a team of analysts at UBS said in a note.

“Hence, we caution against extrapolating the Dutch results, and continue to see a 40 percent chance of a Le Pen victory in France,” UBS analysts added. – UBS via CNBC

Wow! A 40 percent probability of a Le Pen victory. That is certainly not priced and is way above our probability. Expect increased volatility until the final votes are counted in the second round on May 7th. Stay tuned.

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